Giving Seniors The Same Health Plan Congress Has

About the Author

Senators John Breaux (D-LA) and Connie
Mack (R-FL) have developed Medicare reform legislation within the
Finance Committee that, if included in final Medicare provisions of
the reconciliation bill, would improve the program dramatically
while helping to slow the growth in costs. In a nutshell, the bill
would begin to make available to the country's senior citizens a
health program similar to the one now available to Members of
Congress and 9 million other federal workers, retirees, and
dependents.

The Breaux-Mack bill would create a demonstration program in ten
high-cost areas and three rural areas. Within these areas, seniors
and Medicare-eligible disabled Americans would be able to choose
from a much wider range of plans than currently available under
Medicare-much as federal workers do under the Federal Employees
Health Benefits Program (FEHBP). The bill also would introduce many
of the key features responsible for the FEHBP's success and improve
on the FEHBP structure in several ways. Specifically, it would:

1. Open up many new plans under
Medicare In the demonstration areas, health care plans-including plans
offered through unions and associations such as churches or elderly
organizations like the American Association of Retired
Persons-could be offered in competition with current
fee-for-service and health maintenance organization (HMO)
options.

2. Allow the marketing of
supplemental packages Plans could include supplemental packages beyond today's core
package of benefits. Without curbing the right of plans to offer a
range of supplementary services, the Secretary of Health and Human
Services (HHS) would develop two benchmark supplemental packages,
making apples-to-apples comparisons easier for many elderly.
The bill would be better, however, if the required core package
could be leaner than today's benefits, because that would allow
seniors to substitute new services for some existing benefits at
the same premium cost.

3. Allow HHS to negotiate premiums
with plans Borrowing a successful feature of the FEHBP, plans would
submit bids including benefits and proposed premiums, and HHS could
negotiate refinements in pricing and services before the plans are
offered. This would replace the rigid formula currently used to pay
coordinated care plans under Medicare.

4. Create an HHS Office of
Competition to operate the new system Medicare is run by the Health Care Financing Administration
(HCFA), one of the most bureaucratic of all federal agencies. To
spur competition, the bill creates a lean, non-HCFA office to run
the new system of options. Staff, however, would be drawn from
within HHS; it would be better to allow staff to be detailed from
the Office of Personnel Management (OPM), which runs the
negotiation system for the FEHBP.

5. Use a new payment system to give
cost-saving incentives to seniors The FEHBP pays 75 percent of the premium of an enrollee's
chosen plan, up to a maximum amount. Above that amount, the
enrollee would pay the full cost. This gives FEHBP enrollees a
strong incentive to choose the most cost-effective plan. The
Breaux-Mack bill would incorporate a similar system into Medicare:
The program would pay 90 percent of the chosen premium, up to a
maximum of 90 percent of the weighted average of plans in the area
or the average spent for fee-for service coverage in the area,
whichever is lower.

6. Require HHS to provide
beneficiaries with consumer information collected from plans The U.S. General Accounting Office has criticized the HCFA for
collecting mountains of data but giving little usable information
to seniors to help them make medical choices. The bill would
require HHS to provide comparable information on competing plans,
including patient satisfaction surveys and apples-to-apples premium
information, to aid choices. This is very similar to the
information routinely provided to federal workers in the
FEHBP.

The Breaux-Mack bill is a demonstration
program, not comprehensive Medicare reform; therefore, other
reforms would be necessary in final legislation-and many of its
provisions could be applied to the whole program. Congress should
improve on the bill in certain ways, beyond the refinements
discussed, and apply its logic more generally throughout Medicare.
Among the steps Congress should take:

1. Widen the Breaux-Mack
demonstration areas Although the bill does not limit the number of Medicare
beneficiaries who would be in the demonstration program, the FEHBP
structure works for over 9 million people; the Medicare
demonstration should be at least on that scale.

2. Include wider variations of
coverage, including medical savings accounts (MSAs) In Medicare generally, as well as within the demonstration
program, enrollees should be allowed to pick plans with wider
variations of coverage, including MSAs.

3. Create a semi-independent,
congressionally appointed board to operate traditional fee
for-service Medicare in all parts of the country This would remove the management of this part of Medicare from
the HCFA bureaucracy and give the traditional program more
flexibility to modernize and compete with HMOs now in Medicare. The
board also would have power to make variations in the benefits,
including deductibles and copayments, subject to an up-or-down vote
by Congress without amendment.

4. Introduce negotiated payments for
all HMOs in Medicare Today, managed care plans in Medicare are paid according to a
rigid formula based on the cost of fee-for-service care in the
area. Yet the managed care market typically is very different from
fee-for-service, resulting in overpayments to many HMOs. Throughout
the country, HHS should be permitted to negotiate premiums with
Medicare HMOs, as the OPM does within the FEHBP.

Medicare requires fundamental reform if
it is to offer enrollees a wide choice of modern health services.
Congress is looking for ways to do this while curbing the explosive
growth of program costs. For a model, lawmakers need look no
further than the FEHBP, a program that has served Congress and the
federal workforce well for over 30 years. The Breaux-Mack bill, by
introducing the FEHBP's core elements into Medicare, would benefit
both seniors and taxpayers.